Correlation Between MCS Steel and SiS Distribution

Can any of the company-specific risk be diversified away by investing in both MCS Steel and SiS Distribution at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining MCS Steel and SiS Distribution into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MCS Steel Public and SiS Distribution Public, you can compare the effects of market volatilities on MCS Steel and SiS Distribution and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in MCS Steel with a short position of SiS Distribution. Check out your portfolio center. Please also check ongoing floating volatility patterns of MCS Steel and SiS Distribution.

Diversification Opportunities for MCS Steel and SiS Distribution

-0.5

Correlation Coefficient

MCS Steel  SiS Distribution

Very good diversification

The 3 months correlation between MCS and SiS is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding MCS Steel Public and SiS Distribution Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SiS Distribution Public and MCS Steel is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on MCS Steel Public are associated (or correlated) with SiS Distribution. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SiS Distribution Public has no effect on the direction of MCS Steel i.e., MCS Steel and SiS Distribution go up and down completely randomly.

Pair Corralation between MCS Steel and SiS Distribution

Assuming the 90 days trading horizon MCS Steel Public is expected to under-perform the SiS Distribution. But the stock apears to be less risky and, when comparing its historical volatility, MCS Steel Public is 3.21 times less risky than SiS Distribution. The stock trades about -0.28 of its potential returns per unit of risk. The SiS Distribution Public is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,800  in SiS Distribution Public on September 15, 2024 and sell it today you would earn a total of  125.00  from holding SiS Distribution Public or generate 4.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

MCS Steel Public  vs.  SiS Distribution Public

MCS Steel Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MCS Steel Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, MCS Steel is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

SiS Distribution Public

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SiS Distribution Public are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, SiS Distribution may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with MCS Steel and SiS Distribution

The main advantage of trading using opposite MCS Steel and SiS Distribution positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MCS Steel position performs unexpectedly, SiS Distribution can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in SiS Distribution will offset losses from the drop in SiS Distribution's long position.

The idea behind MCS Steel Public and SiS Distribution Public pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Stocks Directory module to find actively traded stocks across global markets.